Pushing Back: Inside the Issue
Alaska-Hawaiian: A good combination? While the industry discussed and debated, Delta and JetBlue delivered some good news: Demand remains strong as the new year approaches. In Delta’s case, transatlantic markets continue to shine. In JetBlue’s case, close-in bookings — these typically produce highish yields — have “outperformed expectations.” And that’s true, the airline said, for both holiday and non-holiday periods. JetBlue of course awaits the judicial fate of its planned takeover of Spirit Airlines, which would create an airline even bigger than a combined Alaska-Hawaiian. JetBlue’s merger does appear riskier than Alaska’s but arguably promises greater revenue synergies.
All the while, declining fuel prices are also helping turn December into a very merry month for U.S. airlines. Well, maybe not that merry for some. JetBlue, despite its more optimistic revenue outlook, still expects a fourth quarter loss. Note also that jet fuel prices are averaging higher in the U.S. than they are elsewhere in the world, though airlines elsewhere are often paying in currencies that have lost value versus the U.S. dollar. Southwest, meanwhile, has more labor trouble following flight attendants’ rejection of a tentative contract offer. A new Southwest pilot contract, meanwhile, remains elusive.
Domestically in the U.S., ASM capacity is up about 8% year-over-year across the industry this quarter, according to Cirium Diio schedule data. But the year-over-year increase will ease to just 4% next quarter. JetBlue, incidentally, is cutting most aggressively, with scheduled domestic ASM capacity showing an 11% decline. It is, however, growing internationally. Note separately that U.S. airline operations have been exceptionally good so far this fall, which in JetBlue’s case resulted in more flown ASM capacity than expected. Put another way, it surprised even itself at how few of its scheduled ASMs were canceled.
For the industry globally, IATA estimates a $23 billion net profit this year. The industry’s collective operating margin will be just 5% though, hardly worthy of celebration. Some airlines and regions are naturally doing better than others. But everywhere, fuel prices are still much higher than they were in, say, 2016 and 2017, when the industry’s operating margins were more like 8% to 9%. During the final week of November, according to IATA’s latest figures, jet fuel averaged the equivalent of $114 a barrel.
Demand in Europe still appears healthy. TUI, the leisure travel conglomerate, sees strong tourism bookings this winter. “Typically, what happens is if things do slow down … it manifests itself in two ways. People will either trade down from a higher star to a lower star property, or they will shorten their length of stay. We’re not seeing that in any of our markets.” Maybe what airlines say is true, that households across the world really are prioritizing travel over other spending categories, blunting the impact (on airlines) of a slowing economy. Separately, TUI said bookings for Egypt, which dropped immediately after the onset of the Israel-Gaza war, have been normalizing. The company also said destinations like Spain were benefiting from lower prices as inflation cools.
Airline Weekly Lounge Podcast
There are three big reasons for Alaska proposed $1.9 billion merger with Hawaiian: scale, loyalty, and premium traffic. And there are lots of questions too.
Weekly Skies
Delta Sees No Letup in the Strong Demand It Enjoyed this Summer
The spotlight was on Alaska Airlines and Hawaiian Airlines. But Delta Air Lines had some interesting things to say last week as well. CEO Ed Bastian and President Glen Hauenstein delivered a presentation to investors at an event in New York City hosted by Morgan Stanley. Unusually for an airline, it was an event focused not on transportation companies or even industrial companies but rather consumer retailers. Delta presented alongside the likes of Walmart, Starbucks, and Krispy Kreme Donuts (yum!). Nothing inappropriate about that, Delta argued, boasting that it’s now the country’s fifth largest e-commerce retailer behind only Amazon, Walmart, eBay, and Apple. Half of the airline’s sales, it added, are now sold directly to consumers rather than via third parties like Sabre or Expedia. What’s more, Delta customers holding a SkyMiles-branded credit card, issued in tandem with American Express, use those cards to spend something close to $280 billion annually, which is roughly 1% of total U.S. GDP. Wow.
Alright, so Delta made its point about why it belongs at a conference on consumer spending. But what industry observers really want to know is the current state of Delta’s business. Good news on that front: The company last week reaffirmed the guidance it gave in mid-October, including the expectation of 9-11% operating margin for the current October-to-December quarter. For all of 2023, operating margin should come in around 11.5%. That would represent a nice improvement from the 8% Delta earned in 2022, though a bit down from its 14% figure in 2019 (when its costs, including labor and fuel, were significantly lower).
Demand, Bastian and Hauenstein insist, remains rock solid as its targeted customer base — U.S. households earning at least $100,000 a year — continue to prioritize spending on experiences over goods. As Airline Weekly has described before, today’s Delta wants to sell BMWs, more so than Honda Civics. In other words, it’s chasing premium travelers like those higher-income households currently driving three-quarters of total U.S. travel spend, according to the airline’s research. So, sure enough, Thanksgiving travel delivered record revenues for Delta, and “Christmas is shaping up to be very, very strong to close the year.” And then, “we’re off to the races back in January.”
Even corporate travel is picking up following a plateau earlier this fall. The Hollywood strike that affected business travel demand from Los Angeles is now over. Same for the autoworker strike affecting business demand from Detroit, one of Delta’s largest hubs. “We’ve seen a nice uptick in corporate travel year-over-year as we close out the year and head into ’24.”
As for international travel, which boomed during this summer, Delta is still feeling bullish. Transatlantic markets, it said, “had the most phenomenal summer ever” and, importantly, “we do not see that abating.” Travel to Europe tends to be seasonally weakest “heading into January and February, and advanced bookings are quite strong and then pick up even further as we head into March and the shoulder season. We’re really optimistic that we’ll have another great run on the transatlantic.” It helps, by the way, that Delta has slowed its capacity growth to Europe (note that its transatlantic entity also includes flights to Africa, the Middle East, and India).
Flights across the Pacific, too, are looking strong, supported by Delta’s joint venture with Korean Air, which facilitates connections to secondary points throughout the region via Seoul. Japan, meanwhile, “is doing very well,” and China also delivering “strong results,” though the Chinese market is only about a tenth the size it was pre-pandemic. There’s also Australia and New Zealand, where it’s expecting “a very strong” peak season. Turning to Latin America, Bastian and Hauenstein admit that “margins are a little bit stressed right now as we grow capacity pretty dramatically.” But a lot of that stems from the expansion of its joint venture with Latam, which is “progressing ahead of plan” and expected to make Latin America a future “profit center.”
Clearly, Delta believes there’s something structural about the demand strength it’s seeing. It’s not, in other words, just a momentary surge destined to peter out as pent-up travel demand runs its course, or as the economy slows. There’s been, for example, “a huge paradigm shift” in demand for premium seats. For much of Delta’s history, its “front cabins were our loss leaders. Now our front cabins are our profit centers.” Travelers, Hauenstein said, are becoming accustomed to sitting in premium class, and Delta is accommodating them by “trying to keep it affordable … whether they’re traveling for business or for pleasure.” Many airlines around the world have reported a much greater propensity for leisure travelers buying premium seats today, versus pre-pandemic. More generally, overall demand is expected to hold strong based on the historical relationship between travel spend and U.S. GDP. Travel demand should be substantially higher than it is now based on that correlation, which has held firm since the early days of airline deregulation four decades ago, Bastian explained.
Adding more detail about corporate demand, the executives said volumes remain about 10% below pre-pandemic levels, but this is “more than offset” by “incredible growth in unmanaged business and small and medium-sized enterprises.” Naysayers who said business travel was becoming obsolete — Microsoft founder Bill Gates, most famously — were simply wrong, Bastian insisted. “The thing that they didn’t get was that the video conferencing tools, those applications for technology, just enhanced mobility. Anything that enhances mobility is going to enhance the value of our brand, the reasons people travel.”
Delta’s optimism doesn’t just stem from its rosy demand outlook. It’s also rooted in favorable industry supply dynamics, with many airlines now slowing capacity growth, especially in the domestic market. It sees “a real shift in terms of the domestic supply-demand imbalance, and one that’s much more constructive as we head out of ’23 and into ’24.” Bastian added that “carriers on the lower end of the fare spectrum really are struggling with not just those constraints but also, how do they get their pricing to match the higher cost of service.” By constraints, he’s referring to disruptions like required engine inspections for Pratt & Whitney’s geared turbofan engines, wreaking havoc on Spirit’s business plans, for example (note: Delta operates these engines as well but has much greater capabilities to manage through the situation).
Bastian and Hauenstein spoke about the promise of artificial intelligence, which Delta is beginning to test with its customer service and reservations teams. It’s doing so with its pricing as well. The opportunity is “enormous,” Bastian said. But “it’s probably a five-year journey.”
Ultimately, Delta’s confidence and strength stems from what executives call its five competitive moats: its people, its operational reliability, its route network, its loyalty program, and its financial strength. Its partnership with American Express alone, underpinned by its SkyMiles loyalty program, generates some $7 billion of revenue annually for Delta. “I don’t know of a commercial partnership on that scale in the country that has that level of power, and growing double-digits year-over-year,” Bastian said. He highlighted the loyalty Delta has among employees too. “Delta was one of only two airlines in the world that did not furlough a single employee.” The other he was likely referring to is Southwest.
In Other News
- IATA delivered its latest global industry outlook, and one conclusion stands out: 2023 was a great year for the global airline industry — by airline industry standards anyway. Collectively, the world’s airlines will have amassed net profits of $23 billion for the year. But as IATA cautions, that equates to a net margin of less than 3%, which it says, “is far from delivering financial sustainability for the industry.” Margins were also below those achieved in the years after oil prices started crashing in late 2014 (see By the Numbers). Next year should be slightly better, with airlines forecast to earn nearly $26 billion in net profits. Worldwide, total passenger airline traffic measured in revenue passenger kilometers (that’s total passengers multiplied by distance flown) remains a few percentage points below its 2019 total. That’s heavily influenced by a sharp reduction in international travel to and from China. Domestic airline traffic is now well above 2019 levels. Strong labor markets, pent-up demand, and easing fuel prices are a few of the tailwinds lifting the industry as 2024 approaches. But the airline industry is highly sensitive to shocks, including wars, natural disasters, fuel price spikes, and of course pandemics.
- JetBlue, after several setbacks this summer (losing the American alliance, air traffic control and weather delays), gave investors some good news last week. Holiday bookings for both peak and off-peak periods have “outperformed expectations,” leading the airline to raise its revenue outlook for the fourth quarter. JetBlue now expects revenues to decrease 4-7% year-over-year, an up to 3.5 point improvement from its last guidance. Higher revenues allowed JetBlue to shrink its forecasted earnings per share loss. For the full year, revenue will come in at the high end of its up 3-5% range.
- Norwegian Air, unsurprisingly, last week disagreed with the Norwegian Competition Authority’s opposition to its proposed takeover of regional Widerøe. In its response to the regulator, the airline said the deal would benefit consumers, “especially for those passengers traveling on connecting flights.” Norwegian Air argued that an analysis by a third-party found that on routes where it competed with Widerøe there was “close to no impact on Norwegian’s fares.” The regulator must release its final decision by January 3.
- Aerolineas Argentinas, Argentina’s national airline, isn’t exactly a symbol of aviation greatness. But low and behold, the carrier is apparently having a good year. It claims to be on track for a $32 million profit this year, and without help from any state subsidies. On the contrary, it is actually delivering money back to the government. Revenues for the year will be about $2.1 billion, an increase of 24% from 2022, and 34% from 2019. Passenger traffic should reach 14 million, a record for the carrier. Next year, it expects to hit 16 million as its fleet grows to 90 planes. These include a few freighters but also several new passenger E195-E2s on order. Note that some of this year’s profits are coming from the airline’s maintenance division. But more importantly, the passenger business is legitimately enjoying a rare period of strength, helped by an increase in foreign tourism driven by Argentina’s extremely weak currency. In addition, competitive pressures eased significantly when Latam closed its Argentine unit during the pandemic. This week, Argentina inaugurates a new president that has expressed interest in handing back ownership of Aerolineas Argentinas to its workers. Unions reject the idea. This is, after all, an airline that lost $667 million in 2019.
- Cathay Pacific signed for up to 26 Airbus A350 freighters last week. The deal includes six firm aircraft plus 20 options. Deliveries are set to begin in 2029. The order is a win for Airbus; Cathay currently flies an all-Boeing freighter fleet.
Routes and Networks
- Delta made good on its hints of new Asia service with the announcement that it would return to Taipei with a nonstop from Seattle next June. The route will fly daily on an Airbus A330-900 from June 6. The new route follows the news that Delta will add a second daily Atlanta-Seoul flight in April; the airline is also gradually resuming nonstops to China. Delta last served Taipei via its former Tokyo Narita hub in 2017 and, before that, in the late 1980s and early 1990s via Seoul. The carrier will compete with Eva Air on the Seattle-Taipei route, per Cirium Diio.
- Route tidbits: Etihad will connect Abu Dhabi and Bali four-times weekly with a Boeing 787-9 from April. But on the flipside, the carrier will end flights to Guangzhou in February. United will link its San Francisco hub with Barcelona next summer with daily flights from May through October. AirAsia will pile on the Seoul Incheon-Kota Kinabalu route with daily flights from March; the discounter joins Asiana, Jeju Air, Jin Air, and Tway Air in the market, per Cirium Diio. Volotea is expanding its Athens base with a new twice-weekly nonstop to Ancona, Italy, from June 2; the discounter plans to fly 23% more seats from Athens next summer compared this year. Canadian discounter Lynx Air will connect Ottawa and Vancouver via Calgary four-times weekly from May 17.
Feature Story
The Alaska-Hawaiian Merger: Good or Bad Idea?
So much for a sleepy Sunday. On December 3, Alaska Airlines surprised the airline world by announcing a $1.9 billion takeover of Hawaiian Airlines. If approved and completed, it would create an airline a bit smaller in revenue terms than a combined JetBlue–Spirit. Interestingly, Alaska says it will retain the Hawaiian branding, popular among residents of Hawaii. But it will integrate everything else: one employee workforce with a single union seniority list, a single operating certificate, a unified loyalty program, etc. It’s a friendly takeover, one that Hawaiian welcomes. If the majority of Hawaiian’s shareholders agree (they likely will) — and if the Department of Justice doesn’t object as it has with the JetBlue-American alliance and the JetBlue-Spirit merger (hard to say if it will) — then Alaska is hopeful of closing its Hawaiian takeover in 12-18 months.
Is Alaska making a smart move? Below are some arguments for and against.
Why Alaska-Hawaiian Makes Sense
- Alaska says the takeover will produce $235 million worth of annual synergies after all the fruits are picked. That’s after incurring an estimated $400-500 million in one-time integration costs, plus $60 million in structurally higher labor costs as Hawaiian’s workers are brought to Alaska’s pay levels. Of the $235 million in synergies, less than 10% will come from non-labor cost savings (mostly eliminating duplicate functions and commanding stronger purchasing power). The other roughly 90% will come from the revenue side, specifically new network opportunities ($110 million), extracting more value from a combined loyalty program ($85 million), and additional cargo opportunities ($20 million). One other note about loyalty: Having lots of seats to Hawaii is extremely valuable for frequent flier programs: That’s where many people want to go with their hard-earned miles (Southwest’s program was less valuable pre-2019, when it couldn’t reward people with Hawaii trips).
- Alaska says it doesn’t need this transaction to secure future growth opportunities. But there’s no masking the ever-worsening space constraints at Seattle’s main airport, where Alaska earns a lion’s share of its profits. The more Seattle looks like London Heathrow, the more it makes sense to fly bigger planes from existing gates. Besides, even if the airport did have room for future growth, how many more profitable routes can it fly with just narrowbody Boeing 737s and Embraer E175s? Growth opportunities from nearby Paine Field are limited. Same from Portland, Ore., a much smaller market than Seattle. California is a fiercely competitive market where Alaska presumably hasn’t managed to replicate anything close to Seattle-like margins. A recent reaction to this growth conundrum involved turning its sights to the currently booming intercontinental arena. But without widebodies, the best Alaska could do is join the Oneworld alliance. Buying Hawaiian opens a whole new world — literally — with its Airbus A330s and soon-to-arrive Boeing 787s.
- The widebodies could help smooth seasonal woes too. Think of moving 787s to the Seattle transcontinental market for the peak summer, and then back to Honolulu for the winter, when Seattle is much weaker. Alaska has griped many times about its inability to achieve attractive margins in the first quarter. Hawaiian itself would have loved to move some widebodies to Seattle while it waited for Japanese demand to recover. Alaska might find it attractive to fly from Seattle to say, London Heathrow, where its Oneworld partner British Airways can provide support. Summertime widebody flying to the U.S. east coast would seem a good opportunity too.
- Make no mistake: Hawaii is no Florida when it comes to competitive intensity. Spirit and Frontier have stayed away. Allegiant tried it but failed. Sun Country has a small footprint. Southwest belatedly entered just prior to the pandemic, but its premium-free product offering appears ill-fitted for lengthy transpacific journeys. Hawaiian, by contrast, has expanded its premium offerings with great success, holding its own against all U.S. rivals including the Big Three. To the critical Japan market, meanwhile, Hawaiian works closely (though not as closely as it would like given regulator objections) with market leader Japan Airlines. (Side note: A big reason why JAL consistently outperformed its rival All Nippon last decade was indeed, its greater exposure to the then-lucrative Hawaiian market).
- Speaking of Japan, Alaska now gets direct exposure to Asia. Hawaiian also serves South Korea, Australia, New Zealand, Tahiti, and the Cook Islands. That’s helpful revenue diversification away from the U.S. west coast, where real estate wealth and tech sector growth has cooled.
- Hawaii also offers more exposure to booming leisure markets (premium leisure no less) at a time when west coast corporate traffic seems stalled. Hawaii, again, is not like Florida. It’s a highish-yield market whose tourist sector has boomed for the better part of the last three decades. Where do you think all of those Silicon Valley artificial intelligence developers go on vacation?
- Let’s be clear: Alaska is doing this deal in part because it thinks it found a bargain. During the second half of the 2010s, Hawaiian was a profit superstar, driving its share price to near $60 at one point. On the eve of its takeover last week, the price had collapsed below $5. Alaska agreed to pay $18. If Hawaiian’s current troubles are indeed temporary in nature, as Alaska says, then just getting even part of the way back to Hawaiian’s old self will make this deal a winner. Alaska, furthermore, has a rock-solid balance sheet that will barely be blemished by the transaction. “This deal,” it said, “made sense at the price we’re paying, without synergies.”
- Execution risks? Sure, there always are with mergers. But Alaska’s management is well-versed in the art, having not long ago managed the takeover and integration of Virgin America.
- Let’s face it. U.S. airline mergers work. There have been six major mergers completed in the U.S. airline industry since 2005 (US Airways-America West, Delta-Northwest, United-Continental, Southwest-AirTran, American-US Airways, and Alaska-Virgin America). All — every single one — have been successful and value enhancing, even if at first operationally difficult. The value that mergers create for loyalty plans alone is enormous. Why would Alaska-Hawaiian be any different?
- Hawaiian should realize value by joining the Oneworld alliance. Hawaiian’s transpacific mainland flying should also benefit from cooperation with Alaska’s close partner American.
- Alaska says Hawaii produces more than $8 billion a year in air travel demand, and Hawaiian and Alaska together would have more than half of the state’s total seat share. The Seattle market, it says, is worth just $7 billion. Scale matters and creating a larger airline will boost Alaska’s negotiating clout with suppliers, creditors, credit card issuing banks, and other stakeholders. Lesson from airline history: Small airlines fail regularly. Large airlines rarely do.
- Yes, Hawaii is a competitive market. Yes, it’s less competitive than Florida. But it’s also less competitive than the Los Angeles and San Francisco hornet’s nests Alaska walked into when it bought Virgin. The Virgin deal also gave it arguably too much exposure to transcontinental markets, where it faces not just the Big Three but also JetBlue, with its lie-flat premium seats.
- Hawaiian will be able to serve many more U.S. mainland markets with a stop in Seattle, Portland, Los Angeles, or San Francisco. And speaking of those California cities, Alaska becomes a more relevant airline there now, with more Hawaiian flights to offer. Maybe this merger is exactly what it needs to help it succeed in California.
- Alaska highlighted one important difference from the Virgin merger: “Hawaiian’s leased aircraft portfolio is modest, with several leases maturing in the next few years. This is a stark contrast to the fleet we inherited in our prior acquisition, in which 86% were leased, most of which had long-term duration remaining.”
- As Airline Weekly noted earlier this year, “Much of Hawaiian’s business is performing perfectly well, including its network to the mainland U.S. Many of its international markets are seeing strong demand as well, including Australia, New Zealand, and South Korea. Premium demand on some of these routes has been ‘exceptionally strong.’ No problem with ancillary revenues either — they’re growing nicely.”
CONCLUSION: ALASKA GOT ITSELF A GOOD DEAL!
Why Alaska-Hawaiian Does Not Make Sense
- Alaska has one of the strongest financial resumes of any airline in the world. In most years it far outperforms its peers in terms of margins. Now it’s putting that record at risk by introducing a multitude of new risks. When Alaska bought Virgin America, it got an all-narrowbody carrier. Even so, the integration proved more complex and disruptive than anticipated. Hawaiian, though, brings four new plane types, two of them widebody. And history shows that widebodies are much riskier than narrowbodies; they’re harder to place (there are fewer markets that can support larger jets) and capable of losing large sums of money. The list of all-narrowbody carriers that rue the day they acquired widebodies is uncomfortably long: Norwegian, WestJet, the AirAsia group, Gol, Skymark, Virgin Australia, etc.
- The complexity goes far beyond just adding widebodies. Like Virgin, Hawaiian flies Airbus narrowbodies, not to mention Boeing 717s that are ideal for inter-island flying but reaching a point not too long from now where they’ll need to be replaced (likely with Boeing 737s, which are arguably too large for Hawaii inter-island). Alaska agonized for a long time whether to keep the Virgin brand, ultimately deciding to scrap it. This time it says it will keep the Hawaiian brand, even while flying on a single operating system — just like hotel companies do, Alaska says. But hotels don’t have to worry about the awkwardness of flying, for example, a Hawaiian-liveried Dreamliner to New York or London from Seattle or Portland.
- With Virgin America, Alaska eliminated a rival with lots of network overlap, yielding immediate pricing power in lots of key markets. Alaska and Hawaiian barely overlap at all, which might be a nice argument to use with competition regulators, but it’s a reality that greatly limits the potential revenue upside.
- That’s all well and good that Hawaiian was a highly profitable airline through much of the 2010s. It was a bankrupt airline at one point in the 2000s. And so far in the 2020s, it’s a money-losing airline at a time when just about every other airline in the world is earning a profit. Alaska is buying a company with Japan problems, geared turbofan engine problems, and Honolulu operational problems. It’s engaged in a bloody inter-island battle with Southwest. The critical Japan market, a treasure trove of profits when the yen was strong, is a shadow of what it was now that the yen (for a long time now) has been very weak. The Maui fires introduced another demand problem. In the meantime, Hawaiians are debating whether they even want more tourism. And even if they do, the opposition to building new accommodation is fierce, meaning Hawaiian vacations will likely become more and more expensive, pricing more and more people out of the market. It doesn’t help that west coast wealth is feeling the impact from lower housing prices and a comedown from the tech sector’s pandemic-era boom. For Hawaiian, the glory days of the mid-2010s might be no less replicable than Pan Am’s glory days of the 1960s.
- Let’s make one other thing clear: Hawaiian’s cost structure is not the same as it was in the mid-2010s. New labor contracts, general inflation, the new planes it’s buying … all have contributed to higher costs. Now these costs will increase again as workers are moved to Alaska’s contracts.
- Will the Biden Justice Department even allow this merger? It said no to the American-JetBlue alliance and won. It said no to the JetBlue-Spirit deal (a judge’s decision is pending). And an earlier Department of Transportation said no to Hawaiian and Japan Airlines forming a joint venture.
- What if the DOJ says Alaska can do the merger but must terminate its partnership with American? Would that trigger enough dis-synergies to wipe out the merger’s benefits? Might the DOJ demand other concessions? American, Delta, and United, by the way, all currently sell Hawaiian’s inter-island flights under their codes. Some of this useful traffic feed could now disappear.
- Alaska might be trading one dependency for another. Yes, it’s arguably over-dependent on Seattle. But now it will have a large portion of its business dependent on leisure travel to one specific island state. Hawaiian has fared well over the past decade, but all its success was underpinned by the simple fact that demand to Hawaii, from both Asia and North America, held strong. The success of this merger depends on that remaining the case going forward.
- Integrating two separate labor groups, with a need to create unified seniority lists, is never easy. It will be more complicated with widebodies and narrowbodies involved. Who gets first rights to fly higher-paying 787s and A330s?
- Another comparison with Virgin here: Both Virgin and Alaska used the Sabre passenger service software. Just a few years ago, Hawaiian adopted the Amadeus system. Alaska will now presumably have to rip that out. Or it could move its own IT to Amadeus, a major multi-year undertaking. But then it wouldn’t be on the same system as its close partner American. Airline mergers are messy!
- Alaska, furthermore, must now deal with the unique complexities of selling airline tickets in Asia, where tour operators still exercise clout. Today, Alaska is largely just a domestic airline, aside from some flights to Canada, Mexico, Central America, and the Caribbean. Now it will have to deal with the complexity of foreign exchange and foreign government relations on a large scale.
- Another complexity: Hawaiian’s cargo flying for Amazon, which was likely motivated by a need to find productive A330 flying. Does Alaska even want that? Is it a low-margin activity?
- And still another complexity: Alaska and Hawaiian have different approaches to premium seats. Hawaiian, for one, offers lie-flat seats. Does Alaska retain two sets of product offerings? If so, would this create confusion? Consider a passenger flying in a lie-flat seat from Honolulu to Seattle, connecting to Philadelphia on an Alaska plane with a less lavish premium product. Lots of product inconsistency for connecting passengers.
- What if the current premium longhaul leisure boom doesn’t persist? There’s no guarantee it will. But it’s something on which Hawaiian has placed a big bet. Alaska says the deal will add more than 2 million more premium seats to its network. That’s nice while premium is in vogue. But what if …?
- Honolulu doesn’t really work as a connecting hub for anything other than intra-island flows, and perhaps some flows to and from Australasia. The geography doesn’t work for, say, mainland U.S. traffic to Japan. Again, the success of Honolulu and Hawaiian more generally comes down to essentially one thing: the health of inbound tourism. Also keep in mind that any markets to Hawaii from the U.S. mainland are subject to heavy hub competition. This is more and more true the farther east you get. From New York to Hawaii, for example, a traveler can connect through Chicago, Dallas-Fort Worth, Denver, Houston, Los Angeles, Minneapolis-St. Paul, San Francisco, etc. This, by the way, would make a London-Honolulu flight tough: so many different options to connect.
CONCLUSION: BUYER BEWARE!